Big banks lose household savings to smaller competitors

Reporter: Emma Alberici

KERRY O'BRIEN: It rarely takes long after the Reserve Bank raises interest rates for the big banks to get those letters out to borrowers passing the rate rise on to mortgage repayments. And so it will be for bank customers this week. But what very few people will hear this week is that the banks are going to give them more for their money. The big four banks haven't increased interest rates on transaction accounts for three years. In the 12 months to January, Westpac, ANZ, the Commonwealth Bank and the National together lost 1.3% of market share in household deposits as the smaller and regional banks came in and lured away their customers with offers of no fees and higher interest rates on savings. Now the majors are finally acknowledging how important their deposit holders are as Finance Editor Emma Alberici reports.

MAN: I'd have a guess at 5.8 per cent.

WOMAN: Oh 1 per cent.

MAN #2: Savings? It's about 0.5 per cent cent.

MAN #3: No, I wouldn't have a clue.

WOMAN #2: Very low, maybe 1-4 per cent.

WOMAN #3: 5.4.

EMMA ALBERICI: The Reserve Bank made the announcement it was lifting interest rates at 9:30 on Wednesday morning. It took just five hours for Westpac to react by raising its one, three, four and five-year fixed home loan rates. By Friday afternoon, the National, ANZ and Commonwealth Banks had all joined the chorus, putting up the prices of their fixed and variable mortgages. But when it comes to the money they pay for, none of the major banks have been as fast to apply the official rate rise.

DENIS ORROCK, INFOCHOICE: On your average, everyday savings account we haven't seen any change from the majors on those accounts and the interest paid on those accounts can be as low as 0.01 per cent.

EMMA ALBERICI: Denis Orrock runs InfoChoice, an independent financial services research group. In the past three years, the Reserve Bank has hiked official rates five times, by a total of 1.25 per cent. But while the average home loan has got more expensive, and bank fees continue to climb, the average transaction account has returned roughly the same amount. Zero.

DENIS ORROCK: Well, it would be a combination of historical perspectives that they cut those rates some time ago and they haven't gone back up, and it's also a combination that the market is evolving. We're seeing new channels for deposit products being offered by these banks.

BRIAN PENHALL, ASSOCIATION OF INDEPENDENT RETIREES: I feel the timelag should be much shorter than it is and I don't see why it's not approaching one week or so, any timelag. But it does cause us concern, because a lot of us, in our income range, might have $50,000 to $100,000 in cash in banks, in the bank. And yes, we look for every 0.5 per cent we can get for every week.

EMMA ALBERICI: Self-funded retiree Brian Penhall man has $30,000 in his bank account earning 1.5 per cent interest. The rest of his savings are in the investment markets, where he knows he'll get a lot more bang for his bucks.

BRIAN PENHALL: At our age, looking for safe havens. We do look for good returns. So yes, we want to see the banks kept healthy, of course. But we would like to see some better performance.

EMMA ALBERICI: The best way to make money out of the banks over the past three years has indeed been to invest in their shares. Combining dividends and capital growth, the ANZ would have returned you close to 48 per cent. Westpac and the Commonwealth Bank around 40 per cent. But of the four pillars, there has been one that's been a little wobbly. In the case of the National Australia Bank, after a series of management blunders, you would've been better off leaving your money in one of their transaction accounts earning just 0.1 per cent. An investment in their shares over the past three years would have set you back 0.6 per cent.

DAVID HUNT, BANKWEST: We did a lot of market research. What we found was Australian consumers didn't feel that they were getting the deal they wanted from their banks.

EMMA ALBERICI: Bank West currently has the most attractive savings account on the market with a 6 per cent interest rate. In the first 13 weeks of the product's launch, $1 billion flowed into it, which can only be accessed via the Internet or the telephone.

DAVID HUNT: There is no catch. They're just great-value-for-money products which are very simple. The fact that they're so simple gives us greater efficiency, which means we can offer customers a better deal.

EMMA ALBERICI: Bank West has picked up on a trend in online banking. Last year, Australians tapped their way through 700 million online banking transactions, which outstripped the number of cheques for the first time in any one year.

DENIS ORROCK: An online savings account is purely that, it's a savings account. It's to allow people to put aside money and save and be rewarded at a high rate. The banks can afford to do this because it's an online channel. There isn't a huge amount of transactional volumes going through. Face-to-face contact is limited.

EMMA ALBERICI: The small and regional banks, led by BankWest and Suncorp, have all started offering online savings accounts. And since official rates were put up last week, they've all passed at least some of that on to their Internet customers. Members Equity, which comes third on the table, actually put their rates up by three times the official rise, but they're the only runs that require you to keep a minimum of $5,000 in the account. Perhaps not surprisingly, none of the big five banks feature in the top eight rates.

DENIS ORROCK: I think if you look at someone like ING Direct, who now have $14 billion in accounts and over 1 million customers, or Bank West, who launched a product late last year and achieved $1 billion in deposits in 13 weeks. That indicates consumers are looking for these type of products.

EMMA ALBERICI: The Australian Bankers Association wouldn't be interviewed by the 7:30 Report, but told us in writing that their members would risk losing market share if they didn't compete for the deposit dollar. The market share statistics already tell that story. In the 12 months to January of this year, all four of the major banks lost market share in household deposits. Given Australians have reported negative savings for every quarter over the past three years, in other words, they spend more than they earn, the banks have a big job on their hands getting any money out of us at all.

DENIS ORROCK: I think perhaps the Federal Government should be considering what banks have to do and what they do not have to do in regards to passing on interest rate rises. Perhaps they should be looking at a minimum level of deposits tied to the RBA cash rate.